Out of the Cocoon

The eleven-story building of the Broken Hill Proprietary Co. Ltd., in downtown Melbourne, is stark and cheerless, almost down at the heels, by U.S. corporate standards. And its tenant is fusty and taciturn. But . B.H.P., as the 77-year-old steelmaker is known Down Under, has paced-- and made possible--the galloping growth of Australian industry since World War II. In the process, it has become a sort of Australian version of A.T. & T., refuting the old dictum that basic industry in a democracy cannot be entrusted to a monopoly.

B.H.P. today produces virtually 100% of Australia's steel and is the country's biggest publicly held company. Although B.H.P.'s total annual capacity of 4,000,0000 tons is less than Bethlehem Steel's Sparrows Point plant, it is the British Commonwealth's biggest steelmaker, with sales of some $413 million in the last fiscal year. Through 16 subsidiaries it makes everything from nails and rails to tools and tars, operates a fleet of 14 cargo ships and a shipyard, and is probing for oil off the Australian coast.

The Corporate Ascetic. Despite its prosperity, B.H.P. has chosen for itself the role of corporate ascetic. Says one former executive, ruefully recalling his $18-a-week expense allowance: "The place is run like a pawnshop." The sprawling B.H.P. shop is presently managed by a triumvirate that prefers fishing to nightclubbing and warily shies away from public notice. The ruling trio: courtly Chairman Colin Y. Syme, 59. a Melbourne lawyer; Managing Director Norman E. Jones, 58, a quiet chemist and metallurgist; and impatient Ian M. McLennan, 52, chief general manager, who joined B.H.P. in 1933 in a cadet engineer's "pick-and-shovel" job. Travelling tirelessly, Syme, Jones and McLennan leave so little authority to underlings that until recently B.H.P. plant managers were forbidden to make expenditures of more than $225 without permission. The limit has now been raised to $2,225.

Named for a rock outcrop in the New South Wales back country where it began mining a treasure-trove of silver, lead and zinc in 1885, B.H.P. turned to steelmaking in the early 1900s. Led by the late Essington Lewis, a single-minded empire builder who made himself Australia's "Mr. Steel," the company doggedly pursued efficiency, threw up new plants, cornered rich ore and coal reserves, and by 1935 had gobbled up its only major competitor. But it was the pell-mell postwar growth of heavy industry and construction in Australia that gave B.H.P. its biggest forward push. With all Australia virtually its private preserve, the company more than doubled its output in a decade. Equity capital flowed in for the asking as eager Australian investors flocked to oversubscribe new stock issues.

Adjusting to Surplus. Last year, as the Australian economy struggled through recession, B.H.P. profits were down (to $32.6 million v. $33.9 million in 1961) for the first time in 13 years. Australians are certain that the country's voracious appetite for steel will recover rapidly, and B.H.P. is confidently spending $112 million a year to increase its capacity to 5,500,000 tons by 1965. But in its effort to win export markets--a move encouraged by the Australian government, which is seeking a cushion against the loss of agricultural exports if Britain joins the Common Market--B.H.P. is encountering vexing and unfamiliar difficulties. Prospects are that the company's sales abroad will drop more than 20% this year.

One big reason is that B.H.P. is meeting mounting competition in Asia from India's new government-supported steel industry and from the aggressive steelmakers of Tapan. Last July New Zealand, which traditionally bought half its steel from B.H.P., eliminated the tariff"advantage that it used to give Australian steel, The result has been a bonanza for the Japanese industry, which, with government assistance, sells steel abroad for 10% to 30% less than in Japan.

To counter the competition, B.H.P. is opening new sales offices abroad, has begun an all-out drive to cut production costs. "But B.H.P. isn't in real trouble," says a former top executive of the company. "They are simply worried by having a little surplus steel for the first -time. When you have lived so long in a cocoon--even an efficiently run cocoon--it's hard, when the cocoon breaks open, to adjust to the new world outside."

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